"With ordinary talent and extraordinary perseverance, all things are attainable."

- Thomas Foxwell Buxton

Govt Incentives
PIC Scheme
Eligibility
Qualifying activities
Qualifying period
Employee requirement
Cash payout option
Taxation of Companies
Tax Rates
Foreign Sourced Income
Unabsorbed Items
Sole Proprietorship
Partnership
Taxation of Individuals
Year of Assessment
Tax Residency
Income Types
Employment Income
Personal Reliefs
Tax Planning
GST
Introduction
Registration Requirement
GST Scope
Types of Supply
GST Management
Our Rates

Government Incentives


Productivity and Innovative Credit (PIC) Scheme

There are many incentives and schemes developed by the Singapore Government to help improve the businesses' competitiveness (especially SMEs). The scheme which had attracted much interest in recent years, and had a significant impact on SMEs, is the PIC scheme.

1. What is the PIC Scheme?

The Singapore Government has always adopted a pro-business approach, and had always developed numerous incentives and schemes to promote businesses' growth.

One of such schemes whose main aim is to promote growth of SMEs is the Productivity and Innovative Credit (PIC) Scheme. In this scheme, the Singapore Government provides incentives such as:

High tax deductions Up to 300% qualifying cost.

Suppose you incur an business expense of $10,000, this $10,000 expense would be deducted from your business expense, and the resulting profit subjected to tax.

However if you incurred $10,000 of expense on PIC qualifying items, you would be able to deduct an additional $30,000 from your revenue (PIC 300% additional deduction), thus lowering your taxable income even further.
Cash Payout Capped at $60,000 for a Financial Year.

Suppose you incurred $100,000 on PIC qualifying items, you can elect to receive a cash payout of $60,000 (at a rate of 60% on qualifying cost)instead of obtaining the additional tax deduction.
PIC Bonus Dollar for dollar matching, up to $15,000.

PIC Bonus is an additional incentive given on top of the additional tax deduction and 60% cash payout.

To put things in a layman perspective, it means that you have the option to reduce your taxes or receive cash payout when your business makes investments in qualifying activities.

The overall impact of the PIC scheme is to help businesses defray the cost of investments (such as purchase of equipment, employee training, etc.) and help to increase its productivity and skills.

2. Who qualifies for the PIC scheme?

All businesses (which is carrying on a trade or business) are eligible for PIC, if they have incurred expenditure in any of the 6 qualifying activities. Pls see below to understand what are the 6 qualifying activities.

The table below is a summary of the PIC incentives which businesses are allowed to claim.

Entity Type PIC Incentives
Tax Deductions Cash Payout PIC Bonus
Companies Yes Yes Yes
Partnership Yes Yes Yes
Sole Proprietorship Yes Yes Yes
Singapore registered branches Yes Yes Yes
Subsidiaries of a foreign parent or holding company Yes Yes Yes
Clubs 2Yes No No
Associations 2Yes No No
Investment Holding Companies 1No No No
Note:
- 1Investment holding companies do not qualify for PIC as they do not carry on a trade or business for tax purposes. These companies own investments such as properties and shares for long term investment and derive investment income such as dividend, interest or rental.
- 2The PIC cash payout and PIC bonus are not available to bodies of persons (clubs, trade associations, management corporations, town councils and co-operatives).

It is available only to companies, partnerships and sole-proprietorships with at least 3 local employees, as the intention of the PIC scheme is to promote growth of business enterprises(especially SMEs) with cash-flow needs for their expenditures on innovation and productivity initiatives.

3. What is the eligibility condition for PIC?

The qualified entities (indicated in the table above) must:
a. incurred the qualifying expenditure and are entitled to PIC during the basis period for the qualifying YA,
b. have active business operations in Singapore, and
c. employ at least 3 local employees (Singapore Citizens and Permanent Residents with CPF contributions) excluding sole-proprietors, partners under contracts for service and shareholders who are directors of the company. Both full-time and part-time employees are considered when determining the number of qualifying local employees.

4. What are the 6 qualifying activities?

Acquisition or leasing of prescribed automation equipment

Acquisition of intellectual property rights

Registering certain intellectual property

Expenditure on research and development (R&D)

Expenditure on training

Expenditure on design

5. What is the qualifying period for the PIC scheme?

Additional Tax Deduction Effective for eight years from Year of Assessment (YA) 2011 to 2018.
60% Cash Conversion
PIC Bonus Effective for 3 years from YA 2013 to YA 2015.

Year of Assessment (YA) refers to the year in which income tax is assessed on the company. For example, in year 2014, the relevant YA is YA 2014.

The basis period for a particular YA is the financial year ending in the year preceding that YA. For example:

31 December
Financial Year End
(YA 2014)
The basis period for YA 2014 is 1 Jan 2013 to 31 Dec 2013.

This means that for YA 2014, the company's income from 1 Jan 2013 to 31 Dec 2013 will be assessed to tax.
31 March
Financial Year End
(YA 2014)
The basis period for YA 2014 is 1 Apr 2012 to 31 Mar 2013.

This means that for YA 2014, the company's income from 1 Apr 2012 to 31 Mar 2013 will be assessed to tax.

6. Do I need to make CPF contributions on my local employees for all 12 months of each YA to be eligible for PIC incentives?

No. Businesses however must contribute CPF on the payroll of at least 3 local employees (strictly Singapore Citizens or Singapore Permanent Residents) as follow:

YA Relevant month(s) for determining 3-local-employee condition
2011 and 2012 In the last month of the basis period for the qualifying YA.
2013 to 2015 In the last month of the quarter or combined consecutive quarters to which the cash payout option relates.
2016 to 2018 For all three months in the quarter or last three months of the combined consecutive quarters to which the cash payout option relates

Take for example a business with a December year end i.e. accounting period from January to December. The relevant quarters for this company would be:

1st Quarter January to March
2nd Quarter April to June
3rd Quarter July to September
4th Quarter October to December

Suppose the business wants to exercise the cash payout option for the 1st quarter - in this case, the relevant month for determining the 3 local employee condition would be March 2014. The cash payout application can be submitted from April 2014 and before the income tax return filing due date (15 April for sole-proprietorship and partnership; 30 November for company).

7. Is a newly set up company eligible for PIC?

Yes, if you meet the PIC conditions.

8. For the cash payout option specifically, what is the amount that an eligible business can get?

YA Cash Payout Rate Expenditure Cap Maximum Payout
2011 to 2012 30% $200,000 over 2 YAs combined $60,000 over 2 YAs
2013 to 2018 60% $100,000 per YA (cannot be combined across YAs) $60,000 per YA

9. Which should I choose - the higher tax deduction or cash payout option under the PIC scheme?

In general, if your business is doing well and has a high level of profits, it is more worthwhile to consider the tax deduction option.

However if your business is in a loss making position (e.g. a new startup) or generating low profits, the cash payout option may be better.

Using a simple example to illustrate: Suppose that Company ABC Pte Ltd meets all the PIC conditions, has a Net Profit Before Tax of $900,000, and that it subsequently incurs a qualified training expenditure of $100,000 for its staff.

No PIC PIC
(Enhanced Deductions)
PIC
(Cash Conversion)
Net Profit Before Tax $900,000 $900,000 $900,000
Less: deduction for training expenditure $100,000 Normal Deduction:
$(100,000)

Additional 300% Deduction:
$(300,000)

Total Deduction: $(400,000)
-
(when you choose cash conversion, you can't deduct the expenditure anymore)
Adjusted Profit $800,000 $500,000 $900,000
Tax payable (17% tax rate) $(136,000) $(85,000) $(153,000)
Cash received from PIC Bonus - $15,000
(capped at $15,000)
$15,000
(capped at $15,000)
Cash received from PIC Cash Conversion - - $60,000
($100,000 x 60%)
Net Tax Payable $(136,000) $(70,000) $(78,000)

In this example, the more beneficial PIC option to adopt is actually the enhanced deduction option instead of cash conversion due to its high level of profits.

Here's another example to illustrate the PIC conversion choice for a company with low profits, e.g. startups. In such a situation, it is better to opt for the PIC cash conversion option.

No PIC PIC
(Enhanced Deductions)
PIC
(Cash Conversion)
Net Profit Before Tax $150,000 $150,000 $150,000
Less: deduction for training expenditure $100,000 $400,000
(400% deduction)
-
(when you choose cash conversion, you can't deduct the expenditure anymore)
Adjusted Profit $50,000 $0 $150,000
Tax payable (17% tax rate) $(8,500) $0 $(25,500)
Cash received from PIC Bonus - $15,000
(capped at $15,000)
$15,000
(capped at $15,000)
Cash received from PIC Cash Conversion - - $60,000
($100,000 x 60%)
Net Tax Payable $(8,500) $0 $34,500
(The cash received from the PIC cash conversion option more than offsets tax payable on your profits)

10. When would I be able to receive the cash payout?

If the authorities approve the PIC claim application, the business should receive the cash payout within 3 months from the date of application.

Taxation - Companies


Compared to many tax regimes in the world which adopt progressive tax rates (i.e. increasing tax rates for higher levels of income) , companies in Singapore are taxed at a flat rate of 17% (the prevailing corporate tax rate as of time of this writing) on their Singapore sourced income.

The profits of the businesses will be assessed to tax at the prevailing corporate tax rate after exemption (full and/or partial exemption).

(With effect from 1 January 2003, tax assessed on Singapore resident companies on its normal chargeable income is a final tax i.e. the after-tax chargeable income can be paid to shareholders as "tax exempt dividends".)


Companies in general

Chargeable Income Exemption (%) Exempt Amount ($)
First $10,000 75 7,500
Next $290,000 50 145,000
152,500

*Newly incorporated companies

Chargeable Income Exemption (%) Exempt Amount ($)
First $100,000 100 100,000
Next $200,000 50 100,000
200,000

*Qualifying Conditions:

- Valid for first 3 YAs from YA 2005.
- Incorporated in Singapore.
- Resident in Singapore.
- ≤20 shareholders throughout the basis period of which (1) all shareholders are individuals, or (2) at least one shareholder is an individual holding ≥10% of the total number of ordinary shares issued.

Tax Filing Timeline

Company's Financial Year End at end of calendar year e.g. 31 December 2013
31 December 2013 Financial Year End
31 March 2014 Filing of Estimated Chargeable Income (ECI) - YA 2014
Pay taxes based on ECI
30 November 2014 Filing of tax return, provide actual tax computation and submit financial statements
Comptroller of Income Tax to issue final tax amount
Business to pay/receive difference in tax amount (between ECI tax amount & final tax amount)

Company's Financial Year End at beginning of calendar year e.g. 28 February 2013
28 February 2013 Financial Year End
31 May 2013 Filing of Estimated Chargeable Income (ECI) - YA 2014
Pay taxes based on ECI
30 November 2014 Filing of tax return, provide actual tax computation and submit financial statements
Comptroller of Income Tax to issue final tax amount
Business to pay/receive difference in tax amount (between ECI tax amount & final tax amount)

Concessions:

A company need not file ECI if the (1) Annual revenue is < $1 million, and the (2) ECI is nil.

Foreign Sourced Income

However if the Singapore company has operations overseas and decides to remit the income back into Singapore, there are many factors to take into consideration. For instance:

- Different tax rates apply for different types of income (dividends, management fees, interest, royalties, technical assistance fees, etc.)
- Amount of relief which can be claimed in Singapore.
- Deductibility of payment by foreign operations in the foreign country.

Capital Allowances

Capital Allowances is similar in concept to the accounting depreciation.

In short, when businesses purchase equipment for use in their business, they are allowed to deduct the amount spent against their income over a period of time. (Capital allowance can be utilised to offset against other income of the business too.)

The cost of some equipment (e.g. computers) are allowed 100% deduction in the year, while the cost of other equipment could only be deducted over a number of Financial Years in accordance to a schedule set out in the Singapore Income Tax Act.

Unabsorbed items - Capital Allowances, Trade Losses and Donations

Capital allowances, trade losses and donations can be utilised to offset against your income, and thus lower the amount of income subjected to taxation i.e. pay lesser taxes. However a situation could arise where the amount of capital allowances, trade losses and donations are greater than the business' income, resulting in a situation where there are "unabsorbed" amounts.

(It might be noteworthy to note that the unabsorbed items of a company cannot be utilised to offset against the income of its shareholders, as they are separate entities.)

The Singapore Income Tax Act prescribes the treatment for these unabsorbed items (capital allowances, trade losses and donations), which is summarised in the tables below.


Unabsorbed Items Carry Forward Carry Backward Group Relief
Capital Allowances
Trade Losses
Donations X

Carry Forward: Businesses are allowed to carry forward unabsorbed items to offset against income in the subsequent Financial Years. The company must satisfy both the same trade test and continuity of ownership test to be eligible for carry forward amd carry back.
Carry Back: Unutilised capital allowances and trade losses in a YA could be carried back to offset against income in the immediate previous YA.
Group Relief: For companies in the same group, the unabsorbed items of the first company (transferor company) can be transferred to the second company (claimant company) to offset its income. In this way, the total taxes of the group is reduced. There are conditions to be satisfied to be eligible for group relief.

Both the transferor and claimant company must:
(1) have jointly elected for Group Relief,

(2) have the same accounting year end, and

(3) both be members of the same group on the last day of accounting period.

Taxation - Sole Proprietorship

Not a separate taxable entity from business The sole proprietor is not a separate taxable entity from its business for tax purposes. The sole proprietor will be assessed directly on income from his business as well as his other income (such as rental income) and taxed at personal tax rates.
Private expenses are non-deductible Do note that expenses of a private nature (such as remuneration, private entertainment, etc.) are not allowed as deduction to reduce his income chargeable to tax.
Payments to family members must be on arm's length basis If there are payments to immediate family members, the value of the services must be on an arm's length basis i.e. based on commercial value and commensurate with the services rendered.
Tax exemption for foreign sourced income All foreign sourced income received in Singapore by individuals is granted tax exemption. (This exemption does not apply to foreign-sourced income received through a partnership in Singapore.)
Tax exemption on locally-sourced passive investment income Tax exemption is also granted on locally-sourced passive investment income derived by individuals. (This exemption also do not apply to locally sourced passive investment derived through a partnership in Singapore e.g. interest from debt securities derived through a partnership.)

Taxation - Partnership

Similar to the Sole Proprietorship, a Partnership is also not a separate taxable entity from the partners for tax purposes.

The precedent partner will be responsible for the submission of the partnership tax return Comptroller of Income Tax and the respective partners will include their share of profits from the partnership in their own tax returns to be taxed at their respective personal tax rates.

The type of partners could be classified into 3 categories i.e. active, sleeping and employee. In short, active partners contribute capital to the partnership and runs the business; sleeping partners contributes just capital to the partnership and is not involved in the day-to-day operations; salaried partner does not contribute capital to the business, but is employed as an employee to run the business.

Types of Partners
Active Sleeping Salaried (Employee)
Capital Contribution Yes Yes No
Participation in partnership's operations Yes No Yes
Partnership Income Treated as business income Treated as business income Treated as employment income
Earned Income Relief? Yes No Yes
Basis Period Preceding financial year Preceding financial year Preceding calendar year
Trade Profits & Non-Business Sourced Income Divisible profits and non-business sourced income are allocated to the partners in accordance to the Profit Sharing Ratio

Individual Tax


Basis Period and Year of Assessment

Basis period: The basis period for individuals operates on the calendar year basis i.e. an individual would be taxed based on his income for the period from 1 January to 31 December of a year.

Year of Assessment: Year of Assessment (YA) refers to the year in which income tax is assessed on the individual. In year 2014, the relevant YA would be YA 2014.

Our income tax system operates on a preceding year basis. What this means is that the income earned in a calendar year would only be taxed in the following year.


Basis Period Year of Assessment
1 January 2012 to 31 December 2012 YA 2013
1 January 2013 to 31 December 2013 YA 2014

Tax Residency Status

Before going into how much would an individual be taxed and how much deductions/reliefs that an individual is eligible for, the tax residency status of the individual must first be determined i.e. whether the individual is a Resident or a Non-Resident for tax purposes.

The Income Tax Act provides the following guidelines to determine the tax residency status of an individual (you are considered a tax resident if you fall into any 1 of the following categories):

1. An individual is a resident of Singapore if he normally resides in Singapore except for absences which are considered temporary and not inconsistent to his claim to be resident - This means that all Singaporean Citizens and Permanent Residents are considered a resident.
2. An individual is a resident of Singapore if in the preceding year he was either physically present or has exercised employment (does not apply to non-executive directors) in Singapore for at least 183 days.

Example: You have stayed or worked in Singapore from 1 Jun 2013 to 5 Dec 2013 (188 days). You will be taxed as a resident for the Year of Assessment (YA) 2014.
3. Foreigners (other than a non-executive director) employed in Singapore for a period extending across at least 3 consecutive years are considered a tax resident for all 3 years of assessment even though he might have been in Singapore for less than 183 days in the first and third year.

Example: You have stayed or worked in Singapore from 3 Nov 2011 to 7 May 2013. You will be taxed as a resident for YA 2012, YA2013 and YA 2014.

YA Period of stay (including work) in Singapore Tax residency status
YA 2012 3 Nov 2011 to 31 Dec 2011 (59 days) Resident
YA 2013 1 Jan 2012 to 31 Dec 2012 (366 days) Resident
YA 2014 1 Jan 2013 to 7 May 2013 (127 days) Resident
4. Foreigner employees who entered Singapore after 1 January 2007 will be considered resident for both years of assessment if his stay in Singapore (including work) is at least 183 days, straddling 2 calendar years.

Example: You have stayed or worked in Singapore from 3 Nov 2012 to 7 May 2013 (186 days). You will be taxed as a resident for YA 2013 and YA 2014.

YA Period of stay (including work) in Singapore Tax residency status
YA 2013 3 Nov 2012 to 31 Dec 2012 (59 days) Resident
YA 2014 1 Jan 2013 to 7 May 2013 (127 days) Resident

Benefits of being Tax Resident

In general, it is more advantageous for an individual to be tax resident than non-resident. 2 of the most tangible financial benefits (and easy to understand) are:

1. A tax resident is eligible for personal reliefs. This lowers your taxable income and hence the amount of tax payable. Pls refer below for more details.
2. A tax resident is taxed progressively on his income from 2% to 20%, whereas the income of a non tax resident is taxed at higher of 15% or resident rate (whichever gives a higher tax amount).
Tax Rates for Tax-Resident Tax Rates for Non Tax-Resident
Chargeable Income Rate (%) Gross Tax Payable ($)
If you are employed for ≤60 days in a year:
- Your short-term employment income is exempt from tax.
- This rule does not apply if you are a director of a company, a public entertainer or a professional in Singapore.
- Tax exemption does not apply if your absences from Singapore are incidental to your Singapore employment. In this case, your total income (including income for services rendered outside Singapore) is taxable in full in Singapore.
If you are employed in Singapore for 61 to 182 days in a year:
- Your employment income is taxed at 15% or progressive resident rates, whichever results in a higher tax amount.
- Director's fees and other income are taxed at the prevailing rate of 20%.
First $20,000
Next $10,000
0
2
0
200
First $30,000
Next $10,000
-
3.50
200
350
First $40,000
Next $40,000
-
7
550
2,800
First $80,000
Next $40,000
-
11.5
3 350
4,600
First $120,000
Next $ 40,000
-
15
7 950
6,000
First $160,000
Next $ 40,000
-
17
13 950
6,800
First $200,000
Next $120,000
-
18
20 750
21,600
First $320,000
Above $320,000
-
20
42,350

Types of income

The types of income could broadly be classified into the following categories:


Income from Employment Salary, bonus, director's fee, commission and others
Gains from the exercise of stock options
Retrenchment and retirement benefits
Income received from overseas
Pension
Income from Trade, Business, Profession or Vocation Income of Self-employed or sole proprietor (commission agents, freelancers, taxi drivers, hawkers, etc.)
Partner in a partnership
Income received from overseas
Income received in form of Virtual Currencies
Income from Property or Investments Dividends
Interest
Rent from property
Net Annual Value (NAV) from property
Gains from sale of property, shares & financial instruments
Others Annuity (recurring annual payments)
Charge (alimony, maintenance payments,etc.)
Estate/Trust income
National Service Recognition Award (NSRA)
Royalty
Withdrawal from Supplementary Retirement Scheme (SRS)

The tax treatment (e.g. is it subjected to tax, when is it taxable, the amount which is taxable, etc.) for each of the categories is different.

It is not the purpose of this section to go into detail on the tax treatment for each income type. Instead, its purpose is to let the reader know what are the items that should not be omitted from consideration when filing their tax returns.

(We would however be elaborating on the tax treatment for employment income as most people derive this income source.)

Should you have doubts regarding the tax treatment for your income type, it's best to consult a professional firm.



Employment Income

Source of Employment Income

The first step in computing the tax payable on employment income is to determine the source of employment income, as only those that are sourced in Singapore will be taxable in Singapore.

Employment income is deemed to be sourced and taxable in Singapore if the employment is exercised in Singapore i.e. employment services rendered in Singapore.

If an employee is required to travel overseas as part of his Singapore employment duties, his remuneration is taxable in full in Singapore as his overseas duties are considered incidental to his Singapore duties.

However, if his duties outside Singapore are separate and distinct from those of his Singapore employment, the overseas remuneration may be treated as a source of income derived from outside Singapore. In this case, the overseas income would be exempt from tax. (All foreign-sourced income received in Singapore by resident individuals, except through a partnership, are exempt from tax.)

What is Taxable Employment Income?

Taxable employment income includes any amount received by an employee for services rendered by virtue of his employment, regardless of whether they are in-cash or in-kind.

Employment income is generally assessed on an accrual basis i.e. the date payment is due and not when the benefit is received by the employee. There are exceptions for items such as directors' fees (based on date approved at AGM) and non-contractual bonuses (based on date declared payable).

Gains or profits from employment (Benefits in kind)

These are the non-cash benefits given to an employee for its services. The tax treatment varies for each category.

• Home leave and relocation passages

• Relocation passages

• Transportation benefits

• Interest subsidy

• Income tax borne by employer

• Value of any food, clothing or lodging provided or paid for by the employer.

• Hotel accommodation

• Value of any place or residence provided by the employer

• Furnishings

• Retirement benefits

• Stock options

• CPF

What is not considered as employment income?

Items which are not considered as employment income are:

• Compensation for the loss of status on taking up new employment.

• Payment for restrictive covenant.

• Compensation for loss of office.

• Gifts and other voluntary payments on personal grounds (items received from anyone other than the employer).

Exemptions and Double Taxation Agreement (DTA)

Income earned by non-resident from employment in Singapore for not more than 60 days (except directors and certain public entertainers) is exempt from tax.

A DTA will also generally provide tax exemption for short-term (period not exceeding 183 days) employees resident in the other treaty country (i.e. resident country). However, one of the usual conditions for exemption is that the emoluments of such an employee should not be borne by an entity in the other contracting state (i.e. source country).

Personal Reliefs - Personal reliefs are claimable by Singapore resident taxpayers against their income income

• Earned income relief

• Spouse relief

• Qualifying child relief

• Working mother's child relief

• Parent relief

• Grandparent caregiver relief

• NS man relief

• Course fees relief

• Foreign maid levy relief

• Life insurance relief

• CPF relief (including self CPF contribution relief)

• CPF cash top-up relief

• Voluntary Medisave contribution relief

• Supplementary retirement scheme relief

Tax planning for employees

When structuring the compensation package of an employee, it is generally more beneficial (tax-wise) to provide benefits in kind instead of cash allowances.

Cash allowances are taxable in full while concessionary tax treatment applies to most benefits in kind (such as housing). Certain items (such as relocation expenses) paid by the employer are also non-taxable income.

When deploying foreign employees in Singapore, employers should structure their deployment period so that they could take advantage of the 60 days exemption (foreign employees who are in Singapore for less than 60 days in a calendar year are exempted from paying taxes on their employment income).

Take for example a scenario where a foreign employee has to be deployed on a project in Singapore for 110 days continuously during the 2013 to 2014 period. The employer could consider deploying the foreign employee for 55 days in 2013 (7 November 2013 to 31 December 2013) and 55 days in 2014 (1 January 2014 to 24 February 2014). In this way, the employee would be exempted from paying taxes.

Tax exemptions available to individuals

Some of the Tax exemptions available to individuals are:

- The Income Tax Act provides for tax exemption of all foreign-sourced income received in Singapore by non-resident individuals.
- With effect from 1 January 2004 (YA05), tax exemption will be granted on all foreign-sourced income received in Singapore by resident individuals provided such income is not received through a partnership in Singapore.
- Interest from debt securities derived by any individual from financing instruments will be exempt from tax.
- Non-resident individuals who earn Singapore employment income for not more than 60 days in a calendar year will be exempt (this exemption excludes directors and certain public entertainers).
- Dividends declared by Singapore companies under the one-tier corporate tax system.
- Amounts withdrawn from CPF.

Tax issues for Foreign Employees

For foreign employees who have (1) ceased employment or (2) leave Singapore for any period exceeding three months, it is the obligation of the employer notify the tax authority (IRAS) and withold all payment due to the foreign employee. The withholding of payment commences from the date he ceases employment or the date when he make known of his intention to go overseas for a period beyond 3 months.

Once IRAS is informed, they would performed tax clearance on the employees (to ensure that there are no outstanding tax payable to the Singapore Government). It is only on the receipt of the tax clearance certificate from IRAS, that the employer could make payments to the employee.

If the company did not withold the payments to the employee, the company would be held liable for any unpaid taxes of the employee.

GST


What is GST?

GST is an indirect tax on domestic consumption of goods and services. In Europe, this is known as the Value Added Tax (VAT). Output tax is collectd by a taxable person on the supplies made by him, and has to be paid over to the Comptroller of GST.

Input tax is paid on supplies purchased by a taxable person, and is recoverable from the Comptroller.

GST Accounting Period & GST Returns

A GST-registered business must submit its GST returns on a quarterly basis within one month after the end of the accounting period.

Compulsory Registration

It is compulsory to register for GST if the annual turnover of taxable supply exceed or expected to exceed S$1 million. This applies to all forms of business vehicles i.e. a sole proprietor may also be a taxable person if the annual turnover of taxable supply of his businesses exceed S$1 million.

Voluntary Registration

A business may volunteer for GST registration if the business makes or intends to make taxable supplies in the course of its business, but it's subjected to the approval of Comptroller of GST.

Once registered, the trader must remain registered for at least 2 years.

Advantage of GST Registration

If the business has dealings with suppliers who are GST registered, input tax on such purchases will be claimable.

Scope of GST

GST is chargeable when a taxable supply of goods and services:

1. takes place i.e. a transaction occurred for a consideration (money or otherwise)
2. is made in Singapore
3. is made by any business that is GST registered
4. is made in the course of business carried out by the taxable person.

GST is also chargeable on the importation of goods into Singapore.

Types of Supply

The types of supply can be classified into 4 different categories, each with a different GST treatment.

Standard-Rated Supplies These are supplies with 7% GST.

These are supplies made in Singapore which are not zero-rated, exempt, and out-of-scope.
Zero-Rated Supplies These are supplies with 0% GST.

Supplies belonging in this category are export of goods (i.e. from Singapore to other countries) and international services (e.g. services connected with offshore land and goods).
Exempt Supplies These are supplies which are made in Singapore, but there's not GST charged on it.

Examples of supplies in this category are financial services (e.g. money changing), and sales/leases of land and building for residential purposes.
Out-of-Scope Supplies These are supplies which are outside the scope of GST.

Examples of supplies in this category are third country sales (i.e. sales where goods are delivered from a place outside Singapore to another place outside Singapore), wages/salaries, private transactions, transactions within the Free Trade Zone and Zero-GST warehouses.

Recovery of Input Tax

Input tax is claimable for only standard-rated supplies, zero-rated supplies and out-of-scope supplies.

Input tax is NOT claimable on exempt supply, and blocked items (e.g. family benefits, motor car and related running expenses, club subscription).

GST Management Strategy

From the writeup above, you would recognise that there would be issue of cashflow strain for a business which imports a lot of goods into Singapore i.e. the business would have to pay import GST at each import, but would have to wait till the end of a quarter before being able to claim these input GST.

Fortunately there are various strategies to mitigate this cashflow strain on the business, depending on the exact situation which your company is facing. We would need to speak to you to understand your situation better before we could advise on the best course of action for your business.


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Feel free to contact us and let us know your requirements, and we would work out a solution as well as provide you with the quotation.

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